The new economy presents numerous challenges for hotels with the three biggest elephants in the guestroom being spastic occupancies from COVID-19, supply chain issues and labor shortages. None will be resolved overnight and there are effects on travel that are here to stay. What’s key is to keep adapting which often requires short-term pain for long-term gain.
Often, it’s hard to properly visualize the near or far-off future where you want to take your brand or your property because to get there you have to disrupt normal operations, creating more work or increasing costs in the process. To help you think more objectively about this time preference – sacrificing the ease of steady-state management in lieu of unsettling this balance to better prepare your organization for coming shifts in traveler behavior – we turn to the now-classic economic theory of creative destruction.
First expressly coined by the Austrian economist Joseph Schumpeter around the time of World War II, the concept has been central to evolutionary capitalism where even Charles Darwin remarked earlier that the “extinction of old forms is the almost inevitable consequence of the production of new forms.” The creative part comes in primarily through technological ingenuity where new, more efficient inventions displace old methods of productivity or a workforce in a now-defunct field.
In other words, real innovation is never complete without destroying something else. For hotels in 2022, we are in still the throes of a rapid evolutionary event – the pandemic – that has accelerated dramatic changes in travel demands and behaviors. Survival requires destruction in one or more creative ways.
By now you should accept that there is no going back to the way things were in 2019, and this will require some emotional strain to see you through to 2023 and beyond. We could drone on about all the forces at play that you’re likely tired of hearing about at this point. Instead, let’s look at the painful destruction your hotel may have to face in order to thrive in the new economy.
- Lean teams mean furloughs can become permanent. Yes, we’re using the F-word, in that the rapid pace of technological upgrades stemming from the first lockdowns onwards naturally mean that numerical roles within hotel companies are no longer needed. With a smorgasbord of connective automation and machine learning tools, a hotel can now imbue enough baseline output into its tech stack to no longer have to pay for a full bench of mid-tier ‘paper pushers’. This allows a property to replace monthly administrative overhead with a SaaS expense, often resulting in a ten-to-one savings going straight to the net operating income. With this added buffer, hotels can put more money in the capex budget or operate out of the red at a lower occupancy. Such a change is emotional painful because it means letting go of friends and perhaps long-time colleagues, not to mention the cultural disruption. In the face of technology now being able to do so much for so cheap, hotels must rejig their entire organizational structure, each manager’s job requirements and the overall succession plan. Or, as an alternative to terminating employments, hotels must redefine what each role encompasses so that the software does the grunt work while managers are asked to take on new responsibilities.
- Guestrooms need serious renovations to meet new demands. After the destruction of the organizational chart comes the physical tearing down of walls. Some related and pervasive trends that can justify a gargantuan property improvement plan are the rise of remote work and the need for extended stay accommodations as well as the continued influences on travelers from short-term rentals. The age-old concept of ‘heads in beds’ will still exist, but it will comprise a smaller slice of the pie with some properties feeling the squeeze by becoming uncompetitive or commoditized to the point of insolvency. Guests increasingly want livable, hybrid travel options – quiet rooms with big desks where they can plunk down with a laptop and take a video call, access to services that become critical for any stay longer than a week or perhaps a small kitchen so that they aren’t beholden to eat out for every single meal. Most hotels weren’t built for these conversions, thus requiring big bucks to carry out. And yet without this conversion, the property will slowly but assuredly die.
- Then redo your public spaces. With so much automation in the form of mobile check-in, mobile keys, kiosks and guest messaging apps, do you even need a front desk anymore? How could you transform that space so that it becomes a meaningful touchpoint for the modern guest? How can you remodel your business center to meet the demand for socially distanced remote work? What are guests looking for when it comes to experiential shopping and how can you adapt your gift shop to address this shift? Instead of maintaining a costly restaurant, would you ever consider shuttering it and partnering with a food delivery app? What about a gated club lounge only for members or premium package holders? We’re just scratching the surface here but as you can see the answer to each question unavoidably necessitates a heavy coin purse.
- Wellness becomes universal. We all understand the first-order effects from COVID-19 – hospitalizations, long-haulers or deaths – but it’s much harder to measure the second-order effects like loneliness, job burnout, depression, mental health issues, alcoholism, drug abuse and, in rare cases, suicide. In search of remedies beyond telehealth and a prescription, people all over the world are turning to wellness and its multifarious combinations of clean eating, exercise, stretching restorative activities, meditation, breathwork, sleep hygiene and a bunch of other de rigueur interests. Hotels that don’t engage guests in this capacity will be missing out on a huge source of ancillary revenues as well as strong method to protect the brand against the heads-in-beds commodification problem. And yet, to do wellness properly will require a total overhaul of normal operations and a cash injection to make it happen.
These are just four macro-trends that may or may not need to be addressed depending on your locale and how you fared during these topsy-turvy times. Underlying each is that in order to innovate in a way that will reposition your brand for long-term viability, you have to dismantle some aspect of your current operations. In this way, creative destruction is the same as what any gymgoer will tell you, “No pain; no gain.”
Hotel Mogel Consulting Limited